Gold Price Outlook as US Bond Yields Rise Ahead of FOMC Decision
Gold fell below the key support level of $4,000 on Friday, extending a decline that began on August 25, when prices peaked at $4,692. The retreat came even as crude oil prices jumped and US bond yields rebounded ahead of the Federal Reserve’s interest rate decision.
US Bond Yields Crawl Back as Crude Oil Prices Rise
Gold continued its recent downward trend as US Treasury yields started bouncing back. The ten-year yield rose to 4.99% from this month’s low of 4.93%. Similarly, the two-year yield rose to 4.68% from this month’s low of 4.61%.
US bond yields bounced back after falling in the previous two weeks as crude oil prices jumped. Brent, the global benchmark, jumped to $117.40, its highest level since May, and 65% above its lowest level in July. The West Texas Intermediate (WTI) ended the week at $103.45.
Oil prices will likely continue rising as odds of another round of war between the US and Iran escalate. President Donald Trump is said to be considering launching another round of strikes after next week’s midterm elections.
Iran, on the other hand, has warned that it will launch major strikes against US interests in the region. It has hinted that it will attack energy infrastructure, desalination plants, data centers, and airports.
Higher oil prices are risky for gold because of the impact on inflation. With gasoline and diesel prices rising, investors expect the upcoming inflation to continue rising. Polymarket traders expect the headline inflation for October to come in at 3.7%, much higher than the Federal Reserve’s target of 2.0%.
Gold Price to React to Federal Reserve Decision
The next important catalyst for gold is this week’s Federal Reserve interest rate decision. Most economists expect officials to leave interest rates unchanged between 3.75% and 4%.
Odds of a second consecutive rate hike fell after the US released a weak jobs report, which showed that the economy created just 29,000 jobs last month. The Bureau of Labor Statistics (BLS) also revised the August jobs numbers downwards.
Gold’s price action will depend on whether the Fed’s decision will be hawkish or dovish. A hawkish decision is often bearish for gold and other precious metals.
Gold’s Technicals Suggest More Downside
Technicals suggest that gold may be at risk of further downside. It formed a death cross pattern on September 30th as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other.
Gold is now trading at a crucial support level, where it has failed to drop below several times since June. Moving below this level will confirm the bearish outlook and point to more downside, potentially to the psychological level of $3,600.
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